The National Forecast Commission has significantly revised down its forecast for this year's economic growth to 1%

  The National Commission for Strategy and Prognosis (CNSP) modified downwards significantly at 1% from 2.8% previously, the estimate for economic growth for this year, due to an accelerated decline of the activity, especially in industry and agriculture.On the supply side, the economy's growth was also affected this year by the modest results in construction (-0.4% compared to 4.8% in the summer forecast), mainly driven by the unfavourable development of residential construction. The previous periods of high inflation and rising interest rates on real estate loans have led to cautious behaviour among the population with regard to house purchases, which has affected market dynamics, the CNSP explains in the document. The only sector for which a positive impact was estimated was services, but with a modest 0.8 percentage points of GDP growth, amid favourable developments in professional, scientific and technical activities, cultural and recreational activities, as well as trade, hotels and restaurants.   On the other hand, evolutions less favourable were estimated for the sector of transport, especially the road one, as a result of the reduced performances of the industry and implicitly goods exports, as well as for the informatics services.On the demand side, taking into account developments in the first 9 months of 2024, the estimates for some of its components have been revised. Thus, the weak performance of construction has led to a reassessment of the growth of gross investment, i.e. a reduction of 3.7 percentage points compared to the previous forecast. The dynamics of government consumption was also revised downwards, moving into negative territory (-1%).   As regards private consumption, the growth of 5.4% estimated in the summer prognosis, was mentioned in the present prognosis.Net exports will have a larger negative impact, reducing GDP dynamics by 2.5 percentage points, due to a sharper contraction in exports of goods and services (-2.4%), in the context of weak economic performance of major trading partners. Net exports are forecast to fall by 0.4% this year to €92.7bn.   The import is estimated growing by 3.3% at 126.1 billion euro.   Under these conditions, the deficit of the commercial balance, will go to 33.4 billion euro, from 29 billion euro in 2023 and the deficit of current account at 28.1 billion euro (22.6 billion euro in 2023), namely 7.9% of GDP (against 7% of GDP of previous year).The estimates regarding inflation for the present year were revised upwards by 0.4% at 5% as a result of the intensification of the growth in prices over the last quarter, resulting in a marginal deviation of only 0.1 percentage points for the annual average.The effects of the current developments will be transmitted into the first part of next year and, together with the prospects of modest economic growth in the euro area's trading partners and the fiscal-budgetary measures to correct the budget deficit, lead to a revision of the estimates towards a cautious scenario, the source emphasises.   Mainly, the downward revision of GDP dynamics by one percentage point, to 2.5% for the Romanian economy in 2025, is based on the slower recovery process in all sectors, in the context of high uncertainty related to international geopolitical tensions, budget planning and a more cautious consumption behaviour of households.   In the medium term (2026 - 2028), the annual growth rate of GDP is estimated at 2.7%, assuming continued absorption of EU funds.   Net exports will gradually reduce their negative contribution to economic growth (-0.2 percentage points in 2028) as a result of the rebound in exports of goods and services, which will grow by 3.3% on average, while imports of goods and services will increase by 3.8%.   The inflationary process will moderate throughout the forecasting period, with the exception of the first half of 2025, when the effects of measures to increase fiscal sustainability will be temporarily felt. According to the projected path, inflation at the end of the year is expected to be within the margins of the inflation target set by the the Central bank from 2026 onwards.   On the external front, the medium-term current account deficit will continue to correct, supported by an increasing absorption of European funds and an improvement in the external competitiveness of domestic goods.   The modest results of the economy this year led to the downwards revision of the prognosis for the current year for relevant indicators regarding the work market, namely the employed population (from +3.3% to +2.1%) which will continue its positive trajectory in the medium term at a modest +0.4%.The BIM unemployment rate will follow a slightly downward trend and is estimated to reach 5.1 per cent over the forecast horizon.   Significant wage growth, underpinned by successive increases in the minimum wage and public sector wage increases, have led to an adjustment in the estimate of average gross average earnings in 2024. Thus, it will increase by 15.3% to RON 8,118, 0.7 percentage points above the level estimated in the 2024 summer forecast.   In its autumn forecast, published in November, the European Commission estimates that the Romanian economy will decelerate this year to 1.4%, but the gradual recovery of external demand, the easing of financial conditions, a private consumption that has proved resilient and an acceleration in investment will support economic growth to 2.5% in 2025 and 2.9% in 2026, recalls the CNSP.